RISK RETENTIONS RISING DESPITE SOFT RATES: SURVEYPosted On: Sep. 27, 1998 12:00 AM CST
Despite the current buyer's market for commercial property/casualty insurance, more U.K. organizations are maintaining or even increasing their risk retentions, according to a recent survey.
The Assn. of Insurance & Risk Managers and the Reigate, England, office of consulting firm Watson Wyatt Worldwide conducted the survey, "Optimizing Risk Retention," of 300 AIRMIC members earlier this year. The survey is intended to provide risk managers with an overview of the approach taken by others in the profession to determine amounts of risk to be retained.
Although companies are turning to insurance where it suits them, survey responses suggest there is little respect among buyers for a "fickle" insurance market, Watson Wyatt said.
AIRMIC said a common theme in the survey responses was that risk managers are maintaining or increasing their retention of risks, even though they recognize that insurance currently can be bought relatively cheaply. AIRMIC said the rationale given for this decision is to maintain the focus of the organization and its employees on reducing risk.
Nevertheless, risk managers said the three most common factors they take into account when making risk retention decisions are: the trade-off between risk and reward, the price of insurance and the ability to negotiate premium discounts.
Almost 40% of the 84 AIRMIC members that responded, ranging from manufacturing companies to financial services to retailers and government organizations, said they dedicated capital to retaining risk.
David Gamble, AIRMIC executive director, said the findings confirm the increasing importance of the risk management role in the United Kingdom.
"Growing confidence in more innovative risk management techniques and principles is reflected in the increased level of risk retention within organizations, supported by a broader senior management outlook to the control of risk," he added.
Almost 50% of the survey's respondents said they expect to use computer-based risk modeling techniques over the next two years to help design insurance programs.
Asked to indicate who has main responsibility for risk retention, 55% of respondents said the risk manager, while finance directors had that responsibility in 26% of cases.
Tim Windibank, risk management partner with Watson Wyatt in Reigate, England, said: "These results suggest continued development in the role and confidence of risk managers but may hide the fact that the impact of the risk financing strategy is ultimately the responsibility of the board."
The survey found that risk managers acknowledge that their operating environment is changing and that this may bring new and broader sources of risk.
Copies of the survey, "Optimizing Risk Retention," are available from AIRMIC, 6 Lloyd's Ave., London EC3N 3AX, England; 44-171-480-7610; fax: 44-171-702-3752.